Quit beating your little doom drum about Japan. I am a Westerner that is working in Osaka. Though I am in Japan, I have worked on products that are not aimed at the Japanese market. If anyone thinks the Japanese are not capable of dominating the Western market, they must not be looking at Nintendo. Nintendo is the winner and undesputed champion when it comes to consistently developing high quality titles.
Treasure, Valve, Blizzard and few other developers who focus a small handful of products have similarly high quality:crap ratios, but none of these companies release nearly as many titles in as many genres as Nintendo. Sports, variety, action, RPG, plenty of genres that Nintendo invented by themselves.
Furthermore, Inafune, do you really know what makes Western technology really freakin’ awesome? Few higher ups in Japan really grasp what makes Western stuff awesome. Simply put, it’s the Western process. Frankly, I could give less than 2 yen if your game uses ambient occlusion. Deferred rendering is nice if it means lower loading times. I’m a simple gamer with simple values: the game must be fun and I don’t like loading times.
Japan needs to embrace what makes it Japan, and improve it with some Western technology. What I say is hardly original; in fact, this policy was mandated by The Emperor Meiji. Most Westerners know the “Revere the Emperor, Expel the Barbarians” decree, but another major phrase which turned Japan into a world super power is “和魂洋才 wakonyousai” which literally translates to “Japanese Soul, Western Genius.”
If the Emperor Meiji was running a game studio, he would license each and every Western game engine and middlewear product. He would send Japanese to go become interns at Crytek, Epic, Valve and Blizzard.
You’d think that reminding Japanese people that the last time they embraced Western methods and technology, they would love to remember those days, almost 150 years ago when Japan went from rinky dink island nation to having one of the most modern and powerful Naval forces at the time. And that this would be an easy way to convince them to modernize again.
I think that if Japan was to do a Meiji Video Game Restoration, they could make what they want to and remain profitable. Their products would be easily localizable for the strong niche of people who like Japan’s quirkier games. Rapid iteration would help them increase the approachability and mass market potential for their more main stream products.
A mix of Nintendo’s incredibly critical self-evaluation, willingness to find the fun and drive for polish with high quality Western tools to make executing the aformentioned qualities efficient, then Japan could potentially be #1 again.